One in 20 homeowners use equity release to fund their retirement

Homeowners are increasingly looking to property wealth to support their retirement, new research suggests.

Last year, an estimated £3bn in retirement spending was funded by equity release — equating to one in every £90 spent by retired people within the UK, according to the Equity Economy Report from Legal & General and the Centre for Economics and Business Research (Cebr).

With property values continuing to rise, this stored-up wealth is likely to fund a growing share of retirement spending and could top £4bn this year.

According to data from Cebr, the share of total property wealth held by over-65s has increased from 28% to 37% over the past 12 years. This, coupled with rising house prices, seems to be driving more homeowners to consider the role that property wealth might play in supporting them financially in retirement. One in 20 homeowners currently use equity release to fund retirement, and this is expected to almost double to one in 10 (11%) based on the anticipated plans of younger homeowners.

Cebr also found that the average amount of equity released is set to rise above £170,000 within the next five years, despite an expected slowdown in housing market dynamics, resulting in a 47% increase on 2021 levels. The total amount of equity released from property is forecast to double by 2030 to over £12bn, as customer numbers increase and the average amount of equity released grows.

There are two main types of equity release:

• Lifetime mortgage. This is the most common type of equity release. You borrow money secured against your home, and this is usually repaid from the sale of your home when you die or move permanently into residential care.
• Home reversion plan. You sell all or part of your property while continuing to live in it until you die or move into permanent residential care.

There are also other options, such as re-mortgaging, downsizing or taking out a retirement interest-only mortgage.

The majority of equity release spending by retirees is used for occasional big purchases such as home improvements, furniture or a new car (£1.9bn), the Equity Economy Report found. Other uses include day-to-day expenses, such as such as food, clothes, transport and entertainment (£1.3bn), as well as holidays, paying off debts and helping family members to buy a property. Equity release is also likely to play an increasingly important role in financing care-related expenses, with one in five (19%) prospective customers citing this as a consideration.

“Our report highlights that homeowners are increasingly planning to use equity release or other ways of accessing property wealth to help fund later life,” said Craig Brown, chief executive of Legal & General Home Finance.

“It has always been Legal & General’s view that changing customer needs and attitudes would see equity release transition from specialist product to a mainstream option. The impact of the equity release market is more significant than just the spending power it gives to customers, it also makes a positive contribution to the UK economy.”